How higher wheat prices affect Canadians

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Farmers

Heavy rains in June ruined many fields in the Prairie provinces, but Dale and Deb Heenan are among the fortunate farmers who have managed to seed most of their land. On their family farm southwest of Regina, the Heenans are breathing a sigh of relief over strengthening wheat prices.

The price increase was fuelled in part by lower wheat production on the Prairies, but it was the devastating drought in Russia this summer and then a Russian ban on grain exports earlier this month that triggered the bulk of the rally in wheat markets. For Canadian farmers who escaped the worst of water-damaged Prairie fields, the higher wheat prices mean much-needed extra revenue. "The price of wheat had been pretty dog-gone low," Mr. Heenan says, noting that even with higher prices, a loaf of white bread still has less than 15 cents worth of wheat in it.

Doug Chorney, who oversees his East Selkirk family farm near Winnipeg, is counting his blessings: he managed to seed nearly 450 acres of wheat. Farmers like Mr. Chorney view buoyant wheat markets as good for Canadian exports, saying that any modest increase in bread prices is worth it because a stronger overall economy emerges. "These wheat prices are a significant improvement, much better than that we thought we were going to get in the spring," Mr. Chorney says.

Bakers

Jos Rehli, owner of Rustic Sourdough Bakery in Calgary, watched a 20-kilogram bag of white flour rise to $12.89 this week, up 15 per cent from the previous price of $11.20 a bag.

Mr. Rehli calculates that ingredients - mostly flour - formerly cost him anywhere from 65 cents to $1.68 for every loaf of bread, depending on whether he's making white bread or fancier multigrain types that call for much more expensive organic flour. His ingredients now cost 75 cents to $1.98 a loaf, and he has other expenses ranging from employee wages and rent to taxes and utility bills. Each loaf currently retails for $4 to $5.50.

Mr. Rehli reckons the higher-priced ingredients will force him to absorb an extra $2,500 a month in costs. He hopes to retain customer loyalty by keeping pricing stable as long as he can, but should flour prices rise again, he will need to pass on the higher costs to consumers. Large baking factories that locked in long-term flour contracts are positioned to ride out short-term spikes in wheat prices, but Mr. Rehli, 60, is nervous because he witnessed three small Calgary bakeries shut their doors after flour prices surged in 2008. "As a smaller baker, I have to pay whatever the flour distributor charges me," he says.

Consumers

In 2008, when wheat prices skyrocketed to record highs, consumer bread prices surged roughly 20 per cent. This time around, the increase is expected to be roughly 5 to 10 per cent at smaller bakeries, as long as wheat markets stabilize. A $3 loaf of bread, for instance, has risen by at least 15 cents in some cases.

The United Nations' Food and Agriculture Organization is urging calm, saying that based on healthy stockpiles of wheat, there is no reason to forecast a repeat of the 2007-08 global food crisis, which hit especially hard in emerging countries.

Prices for bakery products in Canada have climbed, even after the 2008 wheat rally fizzled. Grocery chains like to entice shoppers with staples such as bread, though there is often a maze of higher-margin cheese and sandwich meat to navigate before getting to that bargain loaf. Major supermarkets, which have long used cheaper bread prices as "loss leaders" to lure in customers, are expected to continue those types of promotions, though the discounts may be scaled back. A rally in other food commodity prices - including coffee, sugar, barley and pork bellies - has stoked fears of a re-emergence of food inflation, placing upward pressure on Canada's Consumer Price Index.